How is redundancy pay taxed?
Updated 9 November 2026 · Rates checked against the official sources below
The first £30,000 of redundancy pay is normally tax-free. Anything above £30,000 is taxed as income. But wages, holiday pay and pay in lieu of notice are taxed as normal, even if they're paid in the same lump sum.
Usually tax-free (up to £30,000 in total)
- Statutory redundancy pay
- Enhanced redundancy or severance pay that isn't for work done
- Non-cash benefits you keep, such as a company laptop
Always taxed and subject to National Insurance
- Wages you're owed, holiday pay and bonuses
- Pay in lieu of notice, and post-employment notice pay (PENP) if you don't work your full notice
- Payments for agreeing to a restrictive covenant
Example
Your package is £45,000: £5,000 notice pay and £40,000 redundancy. The £5,000 is taxed like normal pay. Of the £40,000, the first £30,000 is tax-free and £10,000 is taxed as income (employee National Insurance isn't charged on that £10,000, though your employer pays it).
How much is statutory redundancy pay?
It depends on your age, years of service and weekly pay, with weekly pay capped. Our calculator works it out.
Sources
General information, not tax or legal advice. Rules can change; check gov.uk or ask a conveyancer, accountant or Acas before you rely on it.